Does Social Capital Matter in Corporate Decisions? Evidence from Corporate Tax Avoidance

Iftekhar Hasan, Chun Keung Stan Hoi, Qiang Wu, Hao Zhang

Research output: Journal article publicationJournal articleAcademic researchpeer-review

60 Citations (Scopus)

Abstract

We investigate whether the levels of social capital in U.S. counties, as captured by strength of civic norms and density of social networks in the counties, are systematically related to tax avoidance activities of corporations with headquarters located in the counties. We find strong negative associations between social capital and corporate tax avoidance, as captured by effective tax rates and book-tax differences. These results are incremental to the effects of local religiosity and firm culture toward socially irresponsible activities. They are robust to using organ donation as an alternative social capital proxy and fixed effect regressions. They extend to aggressive tax avoidance practices. Additionally, we provide corroborating evidence using firms with headquarters relocation that changes the exposure to social capital. We conclude that social capital surrounding corporate headquarters provides environmental influences constraining corporate tax avoidance.

Original languageEnglish
Pages (from-to)629-668
Number of pages40
JournalJournal of Accounting Research
Volume55
Issue number3
DOIs
Publication statusPublished - Jun 2017
Externally publishedYes

Keywords

  • A13
  • H26
  • M40
  • M41
  • social capital
  • social network
  • social norm
  • tax aggressiveness
  • tax avoidance
  • Z13

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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